Whether or not we believe the news media about a declining US economy, one thing is for sure is that debt collectors are actively filing suits to collect debts. What was once almost unheard of has now become common practice and that is individuals being sued over credit card debt.Increasingly, credit card companies and third party debt collectors are filing lawsuits against consumers in Limited Civil Jurisdiction in State Court. Limited Civil cases are worth more than $10,000 but less than $25,000 and the proceeding is formal unlike small claims lawsuits. In the recent months I have seen a dramatic increase in persons seeking advice on what to do when such lawsuits have been filed. What most want to know is what can be done when they in fact owe this debt. It is no doubt that getting sued is very stressful. But don't delay taking action once a lawsuit has been served. In most cases, a lawsuit is just another tactic used by debt collectors, oftentimes one that can be defended against and possibly disposed of.
Again, lawsuits are last ditch efforts by creditors or third party debt collectors to get the consumers to pay their debt. When an original creditor or third party collector determines that their collection efforts are not garnering the desired settlement of the account, they sue the consumer. This is usually after they have attempted to collect the debt for at least three months. Consumers in default on their credit card debts are not the deadbeats that collectors might have consumers believe. Most consumers in debt have gotten to that point because of unemployment, divorce, mounting medical bills and the ongoing recession. Being sued for a debt only adds insult to injury for a battered consumer.
Some lawsuits are brought by original creditors and some are brought by third party debt collectors who purchase the debt at a discounted rate. Most times debts are purchased for pennies on the dollar. Original creditors might include the banking institution that extended credit, for example Citibank or Chase, or a retailer, like Target, Macy's and or Sears. Third party collectors suing consumers over credit card debt have purchased the debt from the original creditor or from previous debt collectors as holders of the account. That means that the consumer no longer owes Target or Sears but that now the consumer owes the person who is attempting to collect the debt. Sometime these third parties are law firms who specialize in debt collection.
It is important to keep in mind that the value of the debt decreases over time as the ability to collect the debt declines over time. While the dollar amount of debt in default will continue to grow because of interest and penalties, the original debt value drops. Debt collectors buy a bulk of defaulted credit card accounts for much less than the amount of the initial debt. This is important because this will be key to negotiating down the debt.
Lawsuits have strict response deadlines. Consumers must file a response with the court within 30 days from the date the lawsuit is served. If a consumer fails to meet the response deadline, the debt collector may seek a default judgment. This will mean that the consumer is no longer able to respond to the lawsuit or participate in the lawsuit. The debt collector will then ask the court to issue a judgment against the consumer which he can use to put a lien on the consumer's property or garnish the consumer's wages.
For the above reasons, once a lawsuit is served, the first thing to do is consult with a lawyer as quickly as possible as to avoid missing the response date. Next, check the credit report to determine who has collected on the particular account in the past and when the account went into default. That information, plus any other letters or other material related to the account, should be reviewed by an attorney to determine if there are defenses available. One example of a good defense on a credit card debt would be the tolling of the statute of limitations. The statute of limitation prohibits persons from collection on credit card debts over four years old. Any defense that is viable can only be presented if the consumer acts fast and within the statuary time limit of the lawsuit.
Finally, many debt collectors, especially third party debt collectors, may have difficulty proving details regarding a debt. Defense strategy is the key in such cases. An experienced lawyer, familiar with various debt collectors and their practices will be able to assess the possibility of settling the debt out of court for less than the original amount as well as the possibility of getting a case dismissed altogether. Consumers may want to settle a credit card lawsuit because of the potential liability as the ones discussed earlier and in addition, the credit report and credit scores may also be affected. This is particularly significant for the consumer who is interested in making a big purchase, such as a house or a car in the future.
As lawsuits over debt become more common, consumers should keep in mind that there may be valid defenses to the lawsuit even if the debt is owed. The purpose of this column is to provide general information on the law, which is subject to change. It is not legal advice. Consult a lawyer if you have a specific legal problem.